Dear Dr. Peterson:

My name is Micah Merrick. I graduated in 2009 from the Wharton School of Business with an MBA in Entrepreneurial Management. I went on a failed startup adventure in the year following my graduation and wrote a free book based on my experiences called Rethink the MBA.

I am writing to ask you to reconsider the nature of your recent partnership with the Acton School of Business, or any school of business, that sells MBA degrees to aspiring entrepreneurs.

No Axes Here

I have read your book, 12 Rules for Life, and listened to many of your online lectures with interest. I am not penning this letter with an axe to grind. Others can judge for themselves, but what I’ve heard on podcasts with Joe Rogan or Dave Rubin is the voice of someone genuinely trying to help the world, one person at a time.

Furthermore, I’ve followed with interest your stated intention to start a new venture in the education space. There are many problems with The Academy, as you well know, and funding from Peter Thiel (buddy of your fellow traveler, Eric Weinstein) to support a new educational venture seems like a match made in heaven. I remain hopeful that this new venture continues apace.

The MBA Steel Man

First, let me offer a “steel man”, which supports your decision to create an MBA fellowship with Acton in the first place.

Unlike many higher education credentials, MBA degrees, especially from top-ranked schools, continue to earn graduates high salary premiums in exchange for 1-2 years of time and money. The quality of instruction is typically high. Many instructors come directly from industry with little patience for business theories that have not survived in the “real world”. Finally, the MBA experience itself can be deeply rewarding on a personal level, allowing students to connect with talented peers, and spend time in active personal reflection.

Furthermore, the Acton MBA, were it aspiring to serve traditional, career-oriented students, offers more value than a traditional MBA. It is shorter, less expensive, combines online and in-person learning, and uses teaching methodologies such as the famous Harvard Business School Socratic Method. These are important improvements upon the traditional MBA, and Acton has a lot to be proud of with regards to its academic innovations.

The Critical Caveat

Unfortunately, Acton is not trying to serve traditional MBA students pursuing careers in management consulting, banking, or technology. They are trying to serve aspiring entrepreneurs. This is a critical, even fatal, caveat to the steel man above. I know, from first principles and first-hand experience, that aspiring entrepreneurs are the wrong students for an Acton MBA, or any MBA at all. Here’s why:

Human beings with the courage, drive, and risk tolerance to attempt to start their own business are rare. On the other hand, entrepreneurs create massive economic wealth for the societies where they live when they are successful.

Unfortunately, entrepreneurs are statistically headed for failure, and it’s the fate of these failed entrepreneurs, and a society’s ability to “recycle” their talents, which determines whether you wind up as Silicon Valley, or not. If failure is not a fatal blow, or even celebrated, you get the former. If it is financially debilitating or stigmatized, you get something…well, not good.

This means that from statistical first principles, we must judge any form of entrepreneurial education by how it handles the students who “fail” to start a new business, and not fall for the trap of merely judging a program by the “successes”.

So, let’s do this, by comparing Acton against the undisputed benchmark for entrepreneurial education, Y Combinator in Silicon Valley. We’ll do this exercise, not by comparing the fate of the winners, but comparing the fate of the losers:

Acton MBA

Y Combinator

Time

9 Months

3 Months

$ Earned

$0

Living expenses paid by salary

$ Cost

$65,000

$0

Equity Cost

0% of Company

7% of Company for $150k

Cost of Failure

9 months and $65,000

3 Months and $0

Clearly, despite its innovative approach, Acton, not to mention every other “entrepreneurial” MBA offering, is far more expensive for failed entrepreneurs than the best alternative. This expense prevents failed entrepreneurs from being “recycled” in the entrepreneurial ecosystem. Rather than trying again to start a new, potentially successful company, they are stuck pursuing traditional employment in order to pay back their student loans.

It Gets Worse…

There are myriad additional problems to consider:

Adverse Selection: The best aspiring entrepreneurs are busy starting companies, not trying to get a credential called an MBA. Hence, Acton will adversely select for students more likely to fail, exacerbating the moral dilemma I outline above.

Skin In The Game: Entrepreneurial MBA programs have no financial alignment with their student’s success. This lack of Nassim Talebian “skin in the game” presents an intractable conflict of interest.

Entrepreneurial Knowledge is a Commodity: Like all other forms of knowledge, entrepreneurial knowledge is a near commodity available in books, websites, and podcasts from the best practitioners, like Paul Graham, Naval Ravikant, and Marc Andreessen. Charging more than a hardcover book for this content, let alone $65,000, is unjustified. (I am not talking about customized advice from these actual practitioners! Paying PG, Naval, or Marc $65,000 for their startup advice would be a bargain.)

One Path to Redemption

In order for Acton, or any other MBA program to align with failed entrepreneurs, they must solve the problems above. They are not intractable, as Y Combinator, TechStars, and 500 Startups have all shown. However, redemption comes at the cost of a completely different business model: allowing students to pay with equity in their venture rather than with cash, financed by student loans.

If Acton, or any other MBA program, is truly adding value to the education of an aspiring entrepreneur, then the value of their equity portfolio will be on a par with a successful venture capital investor. I would support any MBA program taking this approach 100%.

However, if an business school recruiting aspiring entrepreneurs is not willing to be paid in equity, then they are unfortunately just virtue signaling about “helping entrepreneurs”, while harming those entrepreneurs that will inevitably fail in the future.

Ultimately, there is a solution to this conundrum for you personally. By all means, continue to work with Acton, Founders Institute, or any other entrepreneurial program to integrate your suite of psychological tests and writing exercises. Every student can benefit from this form of self-reflection.

On the other hand, please do not actively encourage aspiring entrepreneurs to pursue an MBA. It is simply a form of educational “help” that does more harm than good.

Tyler Cowen, economist and author of Stubborn Attachments, argues that “sustainable economic growth” is the one thing we should focus on in our societies to achieve maximum human well-being.

On Wall Street, companies are measured quarterly by one thing: Earnings Per Share, which serves as a proxy for overall financial health.

While he was the CEO of Paypal, Peter Thiel would only speak to employees about the one thing most critical for them to accomplish.

Of course, economies, companies, and people are more complex than one thing. However, the success of each complex system may be maximally enhanced by focusing on one thing, and one thing alone.

This raises an intriguing idea: in every complex domain of human activity, is there one thing we could focus on that would yield maximum success?

In higher education, I believe the answer is yes.

Follow the Money

To find it, we have to uncover the primary role that higher education plays in American society. Of course, we’re going to completely ignore mission statements, mottos, and other forms of university “cheap tawk“. We’ll just follow the money, which, according to The National Center for Education Statistics, goes here:

Research: ~$40 billion

Other Stuff (Radio Stations, Sports Facilities, etc.): ~$40 billion

Hospitals: ~$50 billion

Students: ~$192 billion

As we would suspect, higher ed has an important role to play in basic scientific research, training doctors and nurses, and developing future NPR correspondents and NFL athletes. However, if you follow the money, the primary “job” of higher education is teaching students.

So, why do students go to college?

Since 1973, the Higher Education Research Institute at UCLA has been surveying millions of incoming college freshmen. Unlike most surveys, this one is not “cheap tawk” because the respondents are enrolled students putting their money (and OK, their parents money also) where their mouth is.

The most recent survey shows that the #1 reason students go to college is to “get a better job” (85% of students say this reason is “very important”). Unsurprisingly, in 2nd place comes “learning more about things that interest me” (84% of students say this is “very important”). Finally, a majority of students say that “making more money” really matters (73% say this reason is “very important”).

Follow the money.

Higher education primarily serves students. Students pursue a higher education because they want to get a well paying job that overlaps with their personal interests.

It Sounds So Simple…

Today, students have only one way to try and quickly and easily identify a school to meet their goals: school rankings. Several prominent news organizations, such as U.S News and World Report, Forbes, and The Wall Street Journal, rank colleges and universities to try and simplify the selection process. Unfortunately, the school ranking system is broken and confusing. For example:

Which ranking is the “best” or the most “trustworthy”?

How do you compare rankings from different sources?

For example, my alma mater, Penn State University, is ranked 59th, 121st, and 125th respectively according to the sources above. That’s over 60 rankings different between U.S. News and the WSJ.

Why do factors used in these ranking such as “alumni giving” or “financial resources” matter to students?

What if a student is interested in attending the best program, not the best school?

For example, a student might be interested in the best computer science program. Unfortunately, you can’t find a comprehensive ranking of these specific programs.

Outside of rankings, students (and parents) are left with anecdotes, marketing brochures, and “advice” from friends and family based on their own biases or favorite college football team.

Today, it seems that there is no solution to help students understand where they can obtain a cost-effective education to get a better paying job.

But, that doesn’t mean a solution doesn’t exist…

Common Sense

The solution is common sense.

Students say they want a “better job” and want to “make more money”. So, a student’s starting salary after graduation is probably very important! For example, if a student studies computer science at Penn State and makes $50,000 when they graduate, that is probably better than studying at Ohio State and making $40,000. Common sense.

If students want to “make more money”, then it’s also true that they need to spend less money in the first place. For example, paying $100,000 for a bachelor’s degree at Penn State is better than paying $125,000 for the same degree at Ohio State. Common sense.

Finally, the more money a student can make over time, the better off they will be. For example, spending 4 years getting a bachelor’s degree at Penn State is better than spending 5 years at Ohio State, because it maximizes a students lifetime earnings. Common sense.

Higher Ed’s “One Thing”

By using common sense, we know we can help students the most by telling them three simple things: their likely starting salary after graduation, the cost of school, and the time they’ll spend in school. For any school or program, if we take these three data points, we can estimate their earnings over time.

So, why don’t we?

Let’s borrow from Wall Street, and put a new “S” in Earnings Per Share:

Earnings Per Student.

Let’s define Earnings Per Student as the amount of money a student can make in a 10-year period, starting with their first day of school, minus their tuition, and using only their salary within 6 months after graduation for the remaining years.

For example, if a bachelor’s degree in computer science at Penn State takes 4 years to obtain, costs $100,000 in tuition, and has an average graduate starting salary of $50,000, then the EPS for this program is:

6 years x $50,000 – $100,000 = $200,000

We could also calculate the average Earnings Per Student for the entire school by taking the weighted average of students in different programs. For example, if the EPS for computer science majors was $200,000, for English majors $150,000, and there were 10 students in each major, the EPS for Penn State would be $175,000.

Of course, EPS is not meant to be a precise estimate of the actual earnings of a student over a 10 year period. The purpose of EPS is to provide a directionally accurate means of comparing schools and programs.

It’s directionally accurate to say that a student’s salary at graduation indicates the degree to which employers value the knowledge, skills, and tools a student has learned, as well as the market signal of their intelligence that comes with the degree itself.

It’s a truism to say that the less time in school, the better for the student: they will have more time to earn money! Of course, this assumes that the EPS doesn’t change when you shorten the program length. This provides an interesting opportunity for schools to experiment with the tradeoff between program length and quality, in order to optimize the starting salary of a student.

Finally, it’s also a truism that the lower the cost of education, the more of a student’s 10 year earnings will be available for themselves and their families.

Earnings Per Student is the “one thing”.

Coda

We’ve seen that EPS would help students obtain their most important goal: a better, higher paying job. But, there are additional benefits we would foster by focusing on EPS:

It’s possible to think of many ways to make Earnings per Student more sophisticated or accurate. However, if we are trying to help students achieve what theysay they want to achieve, there may be no “one thing” better to measure and improve than EPS.

Beginning this fall, higher education startup Make School, will begin offering a fully accredited bachelor’s degree in Computer Science. But will accreditation unlock new opportunities, or merely slow Make School down?

Y Combinator, or YC for short, is one of the most successful startup incubators in the world, with famous graduates such as Airbnb, Dropbox, and Instacart. However, YC has graduated only a handful of companies offering education and training in higher education, including: Lambda School, NexGenT, Fullstack Academy, and Make School.

As with Lambda School, which I’ve written about here, Make School is at the vanguard of Transparent Education, a trend where schools provide complete transparency around tuition cost and employment prospects after graduation. However, while its YC peers have largely pursued technology training programs that last between 6 to 9 months, Make School has decided to offer full fledged bachelor’s degrees, which take its students 2 to 3 years to complete. Their vision is to combine top-tier computer science training with a broad-based education that includes courses in writing, design, personal finance, and economics, to produce a bachelor’s degree that is “the future of higher education”.

A Cheaper, Faster, 100% Certified College Degree

Make School is pursuing innovation of the traditional bachelor’s degree along three vectors: cost, time, and accreditation. Make School has a lower cost structure than traditional colleges because its faculty aren’t tenured and may not have a PhD. From a time perspective, they are attempting to have students complete their college degree in 2 years, including summers. (Students will take the same number of credit hours as traditional college students, but those credit hours will be condensed into 2 calendar years vs. 4 academic years with summer breaks.) The final innovation, if they can pull it off, will be to have their accelerated degree accredited, providing legitimacy to a program that might otherwise be derided as “just another coding bootcamp”.

Earlier this month, Make School announced that they think they can pull off the accreditation feat, and from the same governing body that accredits Stanford University, no less. Accomplishing this task has been extremely time intensive. Make School has been pursuing accreditation for the last three years, will submit their formal application this fall, and expects to complete the process within 2 years. Even this “short” time span of 5 years was only enabled by pursuing a new “incubation model” in partnership with Dominican University of California.

Degrees vs. Jobs

Choosing to endure the painful process of becoming accredited is one of the factors that separates Make School from other higher ed startups. This is because Make School has a different notion of what the goal of higher education should be. Make School is focused on producing the highest quality, lowest cost, degree for their students. Their peers are focused on the least expensive, most direct way to produce jobs for their students.

We already know that employers, from IBM to small startups, will hire programmers without college degrees. For proof, look no further than Lambda School’s list of hiring partners. On the other hand, as I’ve written about before, companies seeking and hiring applicants without college degrees are still the exception, not the rule. By choosing to pursue innovation around the college degree itself, Make School has essentially made a bet that college degrees will be important for the long-term.

But, important to who? Employers, or student?

When you take a closer look at Make School’s decision, they had feedback “from prospective students and parents — especially those with backgrounds underrepresented in tech — that a bachelor’s degree still held weight for them, their families, and their communities, even if employers no longer demanded it.” (My emphasis). What’s fascinating here is that Make School’s bet is more specific: they are betting on students and parents continuing to choose a college degree, even if employers no longer require it for computer science job applicants.

The Return of Signal-to-Skills Theory

Last week, I wrote about an idea called Signal-to-Skills theory, which predicts that the more technical skill required in an industry, the more important knowledge, skills, and tools will be to employers, compared to whether or not you can “signal” that you have a degree. The theory looks like this:

What Make School’s announcement indicates is that the demand for bachelor’s degrees is really composed of two parts: employers and students. Employers, at least in computer science, are clearly trending against credentials and in favor of skills. On the other hand, prospective students and their parents, still find value in the credential itself.

The question for Make School then is whether the different demand preferences of employers and students is something fundamental, or whether one group is just further up the “Value of Skills” curve compared to the other?

My hypothesis is that the preferences of students and parents are lagging indicators, especially parents. What this means is that students and parents are placing value on a college degree that no longer matches the value of the degree in the job market. If this hypothesis is true, then at some point in the future, students and parents will update their preferences, and will place a much lower emphasis on the degree itself, versus the outcome of the degree: a job.

Crossfit

Which brings me to Crossfit. Yes, Crossfit. As in, the workout gyms and fitness competitions that have seen radical growth in the personal health space over the last 10 years. The Crossfit Games, a fitness competition organized by the founders of Crossfit, is famous for putting its contestants through grueling workouts throughout the course of the competition. In one such workout, called The Murph, contestants have to do a huge number of push ups, pull ups, and squats, while running a mile both before and after the workout.

Oh, and they have to wear a 20 pound vest the entire time.

Make School’s Murph

The unknown for everyone is higher education is how long the college credential will be a “thing”…an idea and concept that you can bet on for the long-term. In the end, every startup, Community College, and University is long or short the “degree”, depending on the choices they make about their educational offering to students. Make School has clearly signaled that they are “long” the bachelor’s degree, and that is fine. The degree may very well last another 10 or 20 years, which is plenty long enough for Make School to have some type of financial exit for its investors.

On the other hand, if you want to go “long” the bachelor’s degree, why do it in Computer Science, an industry that is clearly “short” the college degree, with more and more employers using skills-based hiring to source job candidates? Furthermore, why slow down your product iteration cycle, even a little bit, to conform to the standards and process of the credentialing agencies? It seems in some ways that Make School is at the intersection of a team that is awesome at teaching Computer Science, and students with outdated educational preferences. The result is a product that seems innovative for traditional higher ed, but somehow outdated in Computer Science.

Ultimately, I am hugely supportive of every startup in higher ed, Make School included. We need more experiments for improving higher ed, and this is one of them. If Make School accomplished nothing more than getting some colleges to accelerate their coursework from 4 years to 2 years, that would be a huge, positive change.

On the other hand, in the competition to grow, scale, and achieve a Silicon Valley level of success, it’s possible that Make School has just put on a 20 pound vest.